Condos and Bank Loans

When a bank loans money to a condo unit owner, there are two insurance programs the bank needs to track – the unit owner’s insurance and the condo association’s master policy.

When you take over any property in REO, you have a property exposure (fire, wind, etc. damage to the building) and a liability exposure (someone gets hurt at the location and sues the bank).

With a freestanding building there is only one owner – the bank.

With a condo unit there are two owners:

1) the bank owns the interior of the unit (probably the paint on the walls, carpets, floor coverings, fixtures, kitchen appliances, cupboards, etc.)

2) the condo association own the common areas, studs, siding, roof, etc.

The bank should place coverage on the property in which they have an interest (item one above) – that can/should be on the bank’s REO property insurance program.

The bank should, on an ongoing basis, be sure the condo assn. has the right insurance to coverer the association’s interest (of which the bank is part owner – as a unit owner).

Checking the condo association’s program is a matter of tracking the certificate of coverage in the same manner as the bank checks other insurance on mortgaged property. This is true of REO, properties in the foreclosure process, and mortgages in good standing.

When you loan money on a condo unit, you have interest in two policies – the unit you are loaning on and the commonly-owned part of the building managed by the association.

On the liability side (someone is injured at the location), the bank should add REO locations to the Hanover REO liability policy you buy through Hodge.